Do You Provide Company Vehicles to Your Employees?
Employers who provide company vehicles for use by employees must include the value of any personal, non-business use of the vehicles in those employees’ wages. The value of this fringe benefit is generally the amount it would cost the employee to lease a similar vehicle using the Average Lease Value (ALV) rule.
The ALV value is calculated by establishing each vehicle’s Fair Market Value (FMV) on the date it was first made available to the employee [see IRS table]. This value includes the estimated FMV of maintenance and insurance provided by the employer, but not fuel. If the employer pays for gas, the value is added to the ALV at 5.5 cents per mile or actual FMV. The total benefit is then pro-rated based on the reported business vs. personal miles driven.
An alternate Cents-Per-Mile valuation is available in certain circumstances. With this method, the fringe benefit is calculated by multiplying the employee’s personal-use mileage by the current IRS standard mileage rate (57.5 cents per mile for 2020). The standard mileage rate includes the value of fuel, so no addition is needed for gas paid by the employer.
The Cents-Per-Mile method may be used for vehicles with a maximum FMV of $50,400 that are regularly used by employees in the employer’s trade or business and are driven at least 10,000 miles during the year. The employer must begin using it as of the first day the vehicle is made available to the employee and for every year following, provided it still meets the above requirements.
With either method, the resulting value of the vehicle’s personal use is added to employee’s W-2 wages and is subject to income and employment taxes. Employers can elect not to withhold federal income taxes if they (timely) notify the employees in writing that they are electing not to do so.
The IRS allows a special accounting period of November 1 through October 31 to calculate personal auto use and other fringe benefits, so now is the time to start gathering the necessary information.
Please contact us at 401-831-0200 if you have any questions or would like us to calculate these valuations for you.